September 12, 2016
FOCUS: Banking & Finance

Banks, SBA increase small biz lending

Nathan Fiske
Nathan Fiske
Linda Townsend oversees the construction of her Release Well-Being Center in Westborough.
PHOTO/Nathan Fiske
Linda Townsend stands at the historic Nathan Fisher House in Westborough. The house is part of the future site of her business, Release Well-Being Center, which she financed through an SBA loan.
PHOTO/Nathan Fiske
Linda Townsend oversees the construction of her Release Well-Being Center in Westborough, which she is opening thanks to a $3.2-million U.S. Small Business Administration loan financed through Avidia Bank.

About 16 years ago while she was pregnant, Linda Townsend went to Canyon Ranch, a holistic wellness center in Tucson, Ariz., to learn how to better care for herself and her family. She came away with a new perspective on how to eat, work out and even think – and a desire to take what she learned and share it with people.Today, her dream is closer than ever to being fully realized. Her holistic wellness center, the 11,000-square-foot Release Well-Being, is scheduled to open in the historic Nathan Fisher House in Westborough this December.

To finance this project, Townsend, like many other small business owners, turned to the U.S. Small Business Administration. Through Avidia Bank, she took out a $3.2-million, 20-year SBA loan after putting $700,000 of her own money down to finance construction, building acquisition costs, permits, legal fees and training for the 15-20 full-time employees she plans to hire.

Townsend is one of several Central Massachusetts business owners to finance her project through the SBA, which lent $657 million to Massachusetts businesses in 2015 through its three main loan programs. In terms of loan volume, Massachusetts surpassed pre-recession levels for the first time since the economic downturn last year.

Several banks with locations in Worcester County have boosted their SBA lending, partly aided by a push from the agency to increase lending to small businesses and traditionally underserved populations by waiving certain fees on loans under $150,000, according to the SBA. A handful of local banks, including Rhode Island-based Citizens Bank and Berkshire Bank, which is headquartered in Pittsfield and has a location in Westborough, have taken strides over the past few years to cement themselves in small business lending.

The recovery economy has helped lead to this increase in Massachusetts lending, said Bruce Spitzer, director of communications for the Massachusetts Bankers Association.

"Since the financial crisis, since the midst of it, loan demand has been off. Even companies that had money were conserving and not wanting to borrow," Spitzer said. "We definitely see signs of improving loan demand."

$56M & Counting

According to the SBA's Massachusetts office, total 2016 lending in dollars for Worcester County through September has surpassed 2015 figures by 33 percent.

In all of 2015, the SBA issued 223 loans for a total of $42.2 million in Worcester County. So far in 2016, it issued 244 loans totaling $56.1 million.

The dollar amount of loans under $150,000 grew by 16 percent from 2014 to 2016.

Local financial institutions have increased their SBA lending for loans under $150,000, SBA data show. Marlborough-based St. Mary's Credit Union issued 43 loans under $150,000 through July, compared to 22 the same time last year; UniBank, based in Whitinsville, has given out 32 so far this year compared to 13 last year; and Hudson-based Avidia Bank boosted its loans under $150,000 from three in 2015 to 13 so far this year, according to the SBA.

Those boosts include increases in loans under $50,000 as well, said Robert Nelson, SBA Massachusetts director.

"Worcester area banks have certainly stepped up their game and are doing a lot of activity, helping to propel Massachusetts," Nelson said.

Focus on business lending

Berkshire Bank increased the amount of its Massachusetts SBA loans by 179 percent between 2014 and 2015, and the number of loans increased by 325 percent in the same period, SBA data show.

This increase came from a bank-wide initiative about three years ago to become more active in business banking, said Peter Rice, senior vice president of small business lending. Since then, Berkshire boosted the number of business development officers from two to 20 and has worked to leverage its position in the community to better serve businesses in gateway cities like Worcester, where 37 percent of business owners are foreign-born.

In May, the bank expanded its small business reach through an acquisition of 44 Business Capital, LLC, a top SBA loan originator in Pennsylvania, New Jersey, Delaware, Maryland and Virginia.

"We saw a lot of the bigger national banks pull out of secondary and tertiary cities, and we saw other banks close," Rice said. "Really the SBA program is a terrific program – it allows us to harness local business owners in our communities."

Part of the growth comes from integrating the SBA programs holistically into business, Rice said.

"What a lot of banks have done is they treated SBA as a siloed product, maybe had one specialist in the company. But at our bank everyone does SBA," he said.

Serving the underserved

In Central Massachusetts, Berkshire Bank closed 23 SBA loans so far in 2016. Thirty-six percent of those firms are either female or minority owned, said Brian Ferris, vice president business banking officer at Berkshire Bank.

A desire to reaching out to underserved populations is one of the main reasons the SBA launched the fee waiver for loans under $150,000, Nelson said.

In Worcester County, SBA lending to woman-owned businesses is down 16 percent so far for 2016, though there's still time to make that up. Lending to veteran-owned businesses jumped 157 percent over that same period, and the total dollar amount of loans to minority-owned businesses jumped 80 percent.

"During the economic crisis, it was an extremely challenging credit environment for underserved markets," Nelson said. "The SBA fee incentives certainly increased our loans."

Providence-based Citizens Bank, which has 25 locations in Central Massachusetts, increased its amount given out in loans in Massachusetts by 177 percent between 2014 and 2015, according to the SBA. Its story is similar to Berkshire Bank – a small business lending initiative was launched three years ago, and the bank now has SBA specialists spread out throughout its entire footprint, which includes 11 states.

As of Sept. 1, Citizens Bank issued 186 SBA loans totalling $25.8 million in Massachusetts alone for 2016, a 90-percent increase in volume over the same period the year prior, when the bank issued 97 loans totaling $14.3 million.

"It allows us to help more customers and prospective customers," said Kevin Ferryman, head of SBA lending at Citizens Bank. "It just allows us to bring a more holistic approach to lending for our clients."

The right path

At the Massachusetts Small Business Development Center Network at Clark University, small businesses can receive free, confidential consulting – whether they're just getting started or moving to the next phase of their business plan. The center sees between 700 and 1,000 clients per year, said John Rainey, the center's regional director.

"What's happening is some of the banks are better educated on loan programs that are available. The SBA is getting better," Rainey said. "If I looked at the SBA 22 years ago, I think loans have become much more flexible."

Still, not every company needs an SBA loan, Rainey said. Sometimes banks assume risk by lending themselves to a business, depending on the situation.

But for some companies, there is more risk, so banks will want the SBA guarantee, he said.

Although lending has increased, volume at Rainey's office has actually decreased. That's because people tend to start their own businesses or find employment for themselves during bad economic times, he said.

What Rainey is seeing is fewer new businesses and more people looking to expand or buy an existing business.

"They're still the same loan group, but the amounts are usually larger if you're an existing business and you're purchasing ... equipment or real estate," he said.

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